Settlement Risk
Also called: Herstatt risk, principal risk, delivery risk
Settlement risk is the danger you deliver your side of a trade and the counterparty fails before delivering theirs. It's named Herstatt risk after a 1974 German bank failure that left counterparties having paid deutschmarks and never received dollars, because time zones meant the two legs settled hours apart. The remedy, payment-versus-payment settlement through CLS, now covers most major currency trades.